Critic: Facebook's Zuckerberg has too much control

corporate governance

Bloomberg News

Published 4:00 am, Thursday, February 9, 2012

Photo: David Paul Morris, Bloomberg

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FILE: In this file photo Mark Zuckerberg, co-founder and chief executive officer of Facebook Inc., speaks at a press event at Facebook headquarters in Palo Alto, California, U.S., on Wednesday, July 6, 2011. A Facebook IPO would provide funds to help the social-networking service maintain its expansion and fend off competition from Internet rivals such as Google Inc. and Twitter Inc. Photographer: David Paul Morris/Bloomberg *** Local Caption *** Mark Zuckerberg less

FILE: In this file photo Mark Zuckerberg, co-founder and chief executive officer of Facebook Inc., speaks at a press event at Facebook headquarters in Palo Alto, California, U.S., on Wednesday, July 6, 2011. A ... more

CEO Zuckerberg controls 56.9 percent of voting power at Facebook, the company said in a filing to raise $5 billion in the largest Internet initial public offering on record. He also has the right to appoint his successor, a "disquieting factor," said Haverty, a portfolio manager at Gamco. Still, Facebook is a company that a growth-stock investor "absolutely" wants to own, Haverty said.

"I don't know whether dictatorship is the right word, but it more or less defies every vestige of shareholder democracy known to man," Haverty said. "I don't think it's how business should be run."

Zuckerberg is running the company "as an adult, even though I'm not comfortable with the governance," Haverty said.

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Gamco isn't an investor in Facebook. The money manager may wait for Facebook to have "some sort of an accident" before it buys shares because the stock will be expensive after its IPO, Haverty said in an interview Jan. 30.

Jonathan Thaw, a spokesman for Facebook, based in Menlo Park, declined to comment.

Corporate-governance experts and the California State Teachers' Retirement System have acknowledged concerns that the social-networking company raises corporate-governance issues.

In a Tuesday letter to Zuckerberg, the teachers' pension fund said Facebook should diversify the makeup of its directors before a planned share sale because companies with varied boards perform better than those with "homogenous" ones.

It also said the social-networking company should expand the size of its board. The $144.8 billion fund has invested in Facebook through two partnerships, wrote Anne Sheehan, the pension's director of corporate governance.

"We are disappointed that the Facebook board will not have any women members," Sheehan wrote. "This is particularly glaring in view of the fact that Facebook is going public at a time when there is clear evidence that companies with diverse boards perform far better than the companies with more homogenous boards."

The teachers' pension fund has a history of pushing for changes at companies. It lobbied last year to get corporations to disclose their political donations. In 2009, the pension sent a letter to 300 of its largest portfolio companies asking them to let shareholders have an advisory vote on executive compensation.

"We realize that Facebook will be a controlled company in which the public stockholders will have little influence, but when the company's mission and subscriber base are considered, a diverse board makes good business sense," Sheehan said.